Friday, January 18, 2013

With the
never-ending deficit and debt shenanigans in Washington and the fact that both
sides of the political spectrum are firmly entrenched in their spending cuts or
no tax increase philosophy, I wanted to take a look at how American taxes
compare to those in other nations around the world. Fortunately, KMPG has done all of the heavy lifting.

Overall,
between 2003 and 2009, KPMG noted a gradual decline in the income tax rates for
top earners with a rise in 2010, a fall in 2011 and a rise again in 2012 as
governments around the world became increasingly concerned about mounting debts
and deficits. The 2012 average personal tax rate for the highest income
earners for all 114 nations in the study was 28.9 percent, up from 28.6 percent
in 2011 but down from 30.1 percent in 2004. The prize for the highest
average overall tax rate is held by Western Europe with an average rate of 46.1
percent. Northern Europe has average tax rates of 36.5 percent and
Eastern Europe has average tax rates of a measly 16.7 percent. By
comparison, the highest Federal tax rate for Americans was 35 percent when the
Bush tax cuts were taken into consideration and Canada's highest average
personal income tax rate was 48 percent. The average personal tax rate
for the highest income earners in Australia was 45 percent.
Interestingly, six nations in the Middle East have 0 percent personal
taxes on high income earners; Kuwait, Bahrain, Oman, Qatar, the United Arab
Emirates and Saudi Arabia. In addition, the Bahamas, the Cayman Islands
and oil-rich Brunei share the same low, low personal tax rate on high incomes.

Let's open by
looking at the effective income tax and social security rates on $300,000 of gross income for many of the
nations in the study with the income tax rate in green and the employee portion of the social security rate in blue:

Coming in
number one is France with total taxes of 54 percent followed by Belgium at 53.4
percent and Italy at 51.8 percent. The United Kingdom is in the uppermost
quarter at 42.3 percent. Canada is in the upper third at 40.8 percent,
Australia is just below Canada at 38.7 percent and the United States is in the
bottom third at 30.5 percent. The top ten places are taken up by European
nations with total taxes ranging between 47 and 54 percent. Lucky them.

Let's now
look the effective income tax and social security rates on $100,000 of gross income for many of the
nations in the study for comparison's sake, with the same colour scheme as before:

Belgium is
number one with total taxes of 47 percent followed by Greece at 46.5 percent
and Croatia at 46.3 percent. The United Kingdom and Canada are now in the
middle of the pack with total taxes of 31.4 percent and 30.5 percent
respectively, Australia is in the lower third at 26.4 percent and the United
States is right below Australia at 26 percent.

In closing, here is the taxable income threshold where the
highest rate of personal income taxes take effect by country:

The United
States has the second-highest high income threshold, coming in at a whopping
$388,350, superseded only by Spain which comes in at $394,380. United
Kingdom residents can earn up to $242,760 before they are pushed into paying
personal taxes at the highest rate, putting them in sixth place overall.
Once Australians have earned more than $185,166, they will pay taxes at
the highest personal rate, putting them in ninth place overall.
Canadians, while in sixteenth place, can only earn $134,247 before they
are thrust into the highest tax bracket, just about one-third of what Americans
can earn before they pay the highest rate of personal tax.

While it has
been interesting to watch American politicians quibble about where the
threshold should be for the highest personal tax bracket, taxpayers in most
developed economies around the world, save Spain, would be very pleased to be
able to earn nearly $400,000 before they got hit with an even higher tax bill
than they are already paying. I guess it's all in your perspective.

There is an apples/oranges problem here. Canadian tax rates cited are the combined federal/provincial rate, whereas the US rates are federal only. I don't know which rate is quoted for the other federal states, but the rates cited for Australia suggest that those are also combined rates.

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About Me

I have been an avid follower of the world's political and economic scene since the great gold rush of 1979 - 1980 when it seemed that the world's economic system was on the verge of collapse. I am most concerned about the mounting level of government debt and the lack of political will to solve the problem. Actions need to be taken sooner rather than later when demographic issues will make solutions far more difficult. As a geoscientist, I am also concerned about the world's energy future; as we reach peak cheap oil, we need to find viable long-term solutions to what will ultimately become a supply-demand imbalance.